How Do You Calculate Net Worth?

Taking steps toward your goals is always important — and having a way to actually track that progress is equally key. When it comes to your finances, there are many metrics you could look at, but perhaps none are as useful as your net worth.

Net worth is a measure of how much your financial assets are worth, after subtracting any debts you owe. It’s a quick at-a-glance of your overall financial situation. 

This article will discuss how to calculate net worth, the average net worth in America, and how to improve your own net worth with actionable strategies. 

What Is Net Worth?

Net worth is the value of all the assets (valuables) you own, minus the liabilities (debts) you owe. Valuables are things like money in your checking account, investments, vehicles, and real estate. Debts are things like credit card debt, mortgages, and student loan debt.

You can think of net worth like this: If you sold all your valuable assets, and then paid off all your debts, how much money would you have? 

For example, consider a scenario where someone has $10,000 in retirement savings, $3,000 in cash savings, and a vehicle worth $9,000. Their assets total $22,000. They also have $3,000 in credit card debt and $5,000 in auto loan debt. Their debts total $8,000. In this scenario, the person’s net worth is $14,000 ($22,000 in assets minus $8,000 in debt). 

Average Net Worth

What is the average net worth among Americans? According to a 2022 survey, these are the average net worth figures for various generations:

• Millennials: $127,793
• Gen X: $647,619
• Baby boomers: $1,021,264

For Generation Z, we don’t have clear data on average net worth. 2019 data from the Federal Reserve lists the average net worth of those under 35 at $76,300. However, this figure includes many millennials, so it’s not an exact measure of Gen Z’s wealth. We do know that Gen Z is stashing away 14% of their income for retirement, which is a higher savings rate than previous generations.

Also, keep in mind that averages tend to be skewed higher by extremely wealthy people. The median net worth may be a more accurate measure of a typical American. 

According to the most recent Federal Reserve data, the median net worth for Americans was:

• Under age 35: $13,900
• 35-44: $91,300
• 45-54: $168,600
• 55-64: $212,500
• 65-74: $266,400
• 75+: $254,800

How Do You Calculate Net Worth?

Net worth calculations are relatively simple. The formula is total assets minus total debts. Before you calculate your own net worth, here’s what you need to know about assets and liabilities. 

Assets

Assets are possessions, investments, etc. that are considered valuable. Examples of assets include:

• Cash
• Investments
• Vehicles
• Real estate
• Cryptocurrency
• Valuable collections
• Jewelry
• Artwork

When calculating net worth, you should make a list of all your assets, along with estimated values for each. Many assets already possess a clearly defined value. You can look at your bank account or investment accounts and see the exact cash value on any given day. Other assets may require a bit of research or estimation. The value of real estate, for example, may require research on sites like Redfin or Zillow. 

The value of a coin collection, jewelry, or artwork may require a bit of legwork to determine the approximate value. In some cases, you may need to seek out a professional appraisal. 

Liabilities

Liabilities are debts that are owed to another person or entity. Examples of liabilities include:

• Credit card debt
• Mortgages
• Student loans
• Auto loans
• Personal loans

To calculate net worth, you need to make a list of all your debts and their current amounts. Liabilities are typically easy to measure, as you can quickly check exactly how much you owe. 

Step-by-step net worth calculation

Now that we’ve defined the necessary background information, we can actually calculate our own net worths! Here’s the step-by-step process:

1. Make a list of all your assets, along with the value of each
2. Make a list of all your debts, with the current amount of each
3. Total the value of all your assets
4. Total the value of all your debts
5. Subtract the value of your debts from the value of your assets

Example calculation

Raj sits down to calculate his net worth. He makes a list of all his assets and liabilities, which looks like this:

Assets

• House - $550,000
• Retirement account - $30,000
• Vehicle - $24,000
• Savings account - $7,000
• Checking account - $3,000
• Coin collection - $2,000

Total assets = $616,000

Liabilities

• Mortgage - $450,000
• Home equity line of credit - $12,000
• Auto loan - $10,000
• Credit card balance - $2,000

Total liabilities = $474,000

Net worth

Total assets = $636,000

Total liabilities = $474,000

Net worth = $142,000

Increasing Your Net Worth

Net worth is a simple way to measure where you stand financially. If you’re not satisfied with where your net worth stands, how can you take steps to increase it? There are two ways to increase your net worth: Increasing assets or decreasing debt. We’ll cover each in detail below. 

Acquiring Assets

Increasing the value of your assets is key to improving your net worth. Assets can be anything with value, but it’s wise to focus on primary wealth-building assets like investments and real estate. Here are some ideas on how to increase the value of the assets you own:

Save for retirement using tax-advantaged retirement accounts

Accounts like a Roth IRA or a 401(k) provide valuable tax perks if you save for your future. Check with your employer to see if they offer retirement benefits — if not, you can open a retirement account on your own.

Invest for the future

Money that is invested in stocks, bonds, and other growth assets can benefit from the magic of compounding interest. You can invest within retirement accounts or in a standard brokerage account. Investing doesn’t have to be risky, either! Series I Bonds, for example, offer a good rate of return with no real risk. 

Work towards homeownership

Owning your own home can help you build wealth because a portion of your mortgage payment goes into home equity. 

Build an emergency fund

An emergency fund is money set aside for unexpected events. It’s an important asset, and it can also help you reduce financial stress and prevent going into debt in case of an emergency. 

Adopt a savings mindset

Your mindset and approach to personal finances have a big influence on your financial journey. Adopting a savings mindset can help you make more intentional spending and saving decisions, which can really add up over time. 

Paying Off Debt

Debt is the other half of the net worth equation. Taking steps to reduce your debt is vital, and it can benefit you in three ways: 

• It directly increases your net worth
• It lowers your monthly expenses by eliminating debt payments
• It decreases the amount of interest you pay

Here are some ideas to reduce your debt levels:

Focus on high-interest debt first

High-interest debt is the most costly and should be the first priority when it comes to reducing debt. Credit card debt, for example, often carries interest rates of 20% or more, making it extremely costly.

Consider refinancing

Refinancing debt is a way to combine debts and ideally lower the interest rate you pay. For example, the Payoff Loan™ from Happy Money helps people with credit card debt pay it off faster with a lower-interest personal loan. 

Balance saving vs. paying off debt

Saving for the future is important, but in some cases, paying off debt should be a higher priority. For example, if you have credit card debt at a 22% APR, there’s not much benefit in saving in a savings account that earns 1% interest. For long-term financial success, focusing your efforts on paying off higher-interest debt should be your approach. 

Improve your credit

Your credit score influences the interest rates you pay on certain loans, and can also affect your ability to refinance. Focusing on making on-time payments on all your debts is one way to boost your credit score. 

Build debt payments into your budget

Budgeting can be a useful tool to help pay off debt faster. Budgeting allows you to intentionally plan out your spending, and prioritize the categories that are most important. To pay off debt faster, consider reducing your budget for optional expenses, and funneling that money towards higher debt payments. 

Net Worth ≠ Self Worth

Net worth is just one measure of where you stand financially. It’s only a number, and it does not say anything about your worth as a person or your success in life. Money is just one aspect of living a fulfilling life, so try to have compassion for yourself if you’re not satisfied with your current net worth. 

The important thing is that you are making progress towards your objectives, whatever those goals may be. Whether your goal is to become debt-free, rebuild a damaged credit score, or simply experience more financial security, it all starts with baby steps.